If approved, both agreements would provide a second tier, lower cost pension plan for new employees.

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Savings to the general fund for firefighters will start at $51,000 in the first year and more than $800,000 annually by the 10th year, Millison said.

The city of Santa Rosa has reached a tentative agreement on pension plans with police and fire department employees.

City Manager Kathy Millison said the City Council will consider ratifying the Memorandum of Understanding with the police and fire departments on the pension plans on March 20.

Both agreements provide a second tier, lower cost pension plan for new employees. If approved, police and firefighters will be the first Santa Rosa labor organizations to implement a second tier pension plan for new employees, Millison said.

"With a number of retirements anticipated to occur over the next three years, cost savings will begin to accrue immediately," Millison said.

A Pension Reform Task Force comprised of community members and labor representatives studied pension reform last year with the goal of achieving immediate and ongoing cost savings while maintaining employee pensions.

The proposed reforms included a new, reduced benefit/second tier pension for new hires, increasing employee contributions to pension costs and implementing a three-year average salary versus a single, highest-year salary to calculate the final retirement compensation, Millison said.

The city reached a tentative agreement with the Police Officers Association on a two-year contract that expires June 30, 2014.

Current police employees will still receive 3 percent of their highest year's salary for each year of service when they retire at age 50, meaning employees with 30 years of service can retire with a pension equal to 90 percent of their salary.

The second tier, lower cost pension formula, which begins July 1, applies to employees hired after the implementation of the second tier. At age 55, those new employees will receive 3 percent of the average of their three consecutive years of highest earnings during their career, which usually is their final three years of employment, Millison said.

The change is expected to result in savings of as much as $1 million annually in 10 years as employee turnover occurs, Millison said.

Firefighters have a contract with the city to July 1. They paid 3 percent toward the city's cost of their pensions in 2011 and will pay an additional 2 percent in 2012 for a total payment of 5 percent on July 1, 2012, Millison said.

That saved the city an estimated $944,000 in fiscal year 2011-2012 and will save an estimated $1.2 million in fiscal year 2012-2013, and $700,000 each year thereafter, Millison said.

Firefighters agreed to an addendum to the agreement that creates long term savings through a second tier, lower cost pension plan for new employees, Millison said.

It also includes the 3 percent formula at age 55 based on a three-year average salary compensation formula for all firefighters hired after the new tier is implemented, Millison said.

Current fire department employees will still receive 3 percent of their single highest year's salary at age 50, Millison said.

Current fire department employees will still pay 5 percent of the city's pension cost but all new hires will pay 9 percent effective July 1, 2012, saving the city approximately $9,000 annually for each new hired employee.

The ongoing savings from the changes in the police and fire pension formulas will start small but increase over time, Millison said.

The estimated savings to the general fund for police officers will be $68,000 the first year of the new formula and more than $1 million by the 10th year, Millison said.

Savings to the general fund for firefighters will start at $51,000 in the first year and more than $800,000 annually by the 10th year, Millison said.